Charitable changes

IRS proposed revamp of charities' tax form affects consumers, donors

SAN FRANCISCO (MarketWatch) -- For the first time in 25 years, the IRS is revamping the Form 990 that charitable organizations file annually and the changes could help donors as well as require them to be more careful about their own donation reporting.

The new form may also help the IRS better protect consumers from organizations that violate the terms of their nonprofit status.

Prospective donors may find one change particularly useful: The proposed Form 990 includes a summary page providing a snapshot of the organization's financial situation, including figures such as total expenses as a percentage of net assets and employee compensation as a percentage of program services.

This summary page will say "what they're doing, how they're doing it and how they're spending their money," said Lois Lerner, director of the IRS's exempt organizations division, in a media teleconference announcing the proposed changes.

"If you're a contributor and you want to see how this organization stacks up against others, you can look at just this page," she said.

The new form also asks for more details on executive compensation, plus more information on charities' relationships with for-profit subsidiaries and other "more targeted and detailed information which ... will allow us to see emerging potential compliance problems, such as credit counseling, more easily," Lerner said, in an e-mail interview.

Lerner is referring to a problem evidenced in the credit-counseling industry last year when the IRS revoked the tax-exempt status of dozens of firms that bilked consumers for steep fees without offering significant debt-management help. See related story.

More detail on noncash contributions

Charitable donors, take note: Under the proposed form, some charities will need to provide more details on the noncash contributions they receive -- such as art work, securities and property easements -- giving the IRS an easier verification of how donors' claimed contributions match up to charities' records.

It was possible for the IRS to make this type of verification before, but with the proposed form changes that process will be easier for the IRS, Lerner said.

"We were always able to check, but not as easily," she said.

According to the IRS, the proposed form requires more detail from organizations that receive more than $5,000 in noncash contributions "including publicly traded and closely held securities, intellectual property, cars, art, collectibles, real estate interests, conservation easements, household goods and clothing."

Heavier burden for charities?

The IRS proposes to add 15 new schedules to go with the new 10-page form, but many charitable organizations will not need to file most of those schedules and much of the information required by the new schedules is already required on the current Form 990, Lerner said.

While the new form may require organizations to answer more questions overall, Lerner said, the process will be about the same.

"The questions are more focused; the answers will be more focused. At the end of the day, they'll find it easier to fill this out than they found the other one," she said.

"Overall, I don't think we're asking people to provide a whole lot of additional information, just better information," Lerner said.

The deadline to send comments regarding the proposed changes to the IRS is Sept. 14. The IRS is planning to have the new form completed for the 2008 tax year, for use when organizations file in 2009.

"We are holding this comment period strictly to three months. Sept. 14 is the last date for commenting," she said. "We're also asking that people who are interested in making comments make them as quickly as possible. We would prefer they come in incrementally," rather than people waiting to review all the changes to form, schedules and instructions.

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